A new $29 B gimmick in the reconciliation bill

(Updates and corrections are in green.)

A knowledgeable friend pointed out a $29 B Medicaid gimmick in the reconciliation bill that has so far, to my knowledge, not been publicly discussed.

Both the huge amount of hidden spending and the irresponsible policy should offend responsible policymakers. The reconciliation bill would create a new funding cliff for doctors in Medicaid, parallel to the Medicare doctor funding cliff in current law that fouls Congress up each year. By creating this funding cliff the bill’s authors were able to shave $29 B off the CBO score and once again make the bill appear less expensive than it really is.

In the late 90’s the feds gave up authority to determine Medicaid payments to providers, leaving all that authority in the hands of States. States liked this because they could squeeze payment rates to providers (hospitals, doctors, nursing homes) to save money.

You’ll remember from an earlier post that Medicaid is a shared federal-State financing arrangement. On average the feds pay 57 cents of each dollar spent in a State Medicaid program, and the State covers the other 43 cents. This federal match rate varies by State.

The bill passed by the House last November contained a huge Medicaid win for doctors and their lobby the American Medical Association, although at the expense of federal taxpayers rather than States:

  • Through their Medicaid programs, States would be required to pay primary care doctors no less than Medicare pays. In some cases this would significantly increase the amount a doctor received for performing a service in Medicaid. This was a reversal of the late 90s bipartisan policy change giving States complete flexibility to set Medicaid payment rates to providers.
  • The federal government would reimburse States for any the increased Medicaid costs that result from this mandated payment rate increase. The federal match rate for the incremental cost would be 100%.

This was a $57 B win (over 10 years) for primary care doctors in the House-passed bill. This is in addition to a much-discussed separate $210 B side deal commitment to the AMA from the White House and Democratic Congressional Leaders to support separate legislation that would prevent Medicare payments to doctors from declining in future years. I will surmise that the $267 B of additional Medicare and Medicaid payments to doctors are the primary reason AMA supported the House-passed bill.

CBO charged the House-passed bill with $57 B of additional spending for this provision.

For reference, the relevant legislative language can be found in §1721 of the House-passed bill (H.R. 3962). The $57 B figure can be found on the line for §1721 on page 7 of the CBO estimate.

Now we have a new reconciliation bill that the Speaker will try to pass on Sunday. §1202 of the new reconciliation bill (p. 60) is identical to §1721 of the House-passed bill except for the dates.

The House-passed bill contains this policy as a permanent windfall for primary care doctors beginning in 2010 (it’s phased in over the first two years).

The reconciliation bill’s authors have limited the House-passed provision so that it applies only for 2013 and 2014.

CBO charged the new reconciliation bill with only $8 B of additional spending, since the provision is in effect for only two years.

For reference, the new legislative language is in §1202 of the reconciliation bill, and the $8.3 B figure is on the line for §1202 on page 10 of the CBO estimate.

The reconciliation bill would therefore create a new Medicaid (not Medicare) “primary care doctor payment cliff,” beginning after 2014. Just as Congress is under unbearable pressure now from doctors to prevent Medicare payments to doctors from being cut, the reconciliation bill would create exactly the same thing in Medicaid, beginning January 1, 2015.

If you assume Congress will not allow that newly created Medicaid funding cliff to bite beginning in 2015, they will spend an additional $29 B in the first decade, beginning in 2015.

This is an intentional gimmick designed to reduce by $29 B the scored cost of the reconciliation bill. As policymakers on both sides of the aisle bemoan the mid-90s Medicare policy change that created today’s Medicare funding cliff, the Speaker and her allies propose to create an exact parallel in Medicaid, beginning Monday.

It’s hard to say which is worse: intentionally hiding $29 B of spending, or intentionally creating a funding cliff. I’ll call it a tie.

(photo credit: bitzcelt)

I escaped Washington, DC and now teach at Stanford's Graduate School of Business.

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Posted in budget, health
14 comments on “A new $29 B gimmick in the reconciliation bill
  1. Guest says:

    The bigger gimmick is that the Medicare tax isn't indexed. It is AMT part 2.

  2. […] KEITH HENNESSEY: A New $29 Billion Gimmick In The Reconciliation Bill. […]

  3. mndasher says:

    The likely scenario if the senate bill passes the house via deeming, will be the reconciliation bill will go to the dead letter bin in the senate and never be acted on. The bad news is the Senate bill is bad legislation which should never of passed.

  4. Diogenes says:


    I wouldn't refer to setting reimbursements for the docs at Medicare rates as a "windfall" no matter what the circumstances. Here in Texas only a small percentage of docs will take more than a few Medicaid patients, and many are limiting their Medicare patients loads as well. This is a special concern for me as I am approaching age 65 and retirement, and expect to move out of an urban enviornment to a new location where I will have to find a doc who will take another Medicare patient.

    All of this discussion about cuts here and there is easy as long as it is impersonal and abstract. When you need to rely on that system, however, it is anything but.

  5. […] wherein the score assumes big future cuts in Medicare reimbursements that will never happen. Keith Hennessey points out that the reconciliation bill creates a new “doc fix” problem in Medicaid. […]

  6. cbinflux says:

    1/3 of doctors will quit, but no worries — Pg 875 dictates that teaching hospitals replace those quitters with C-D students who just happen to be black or Hispanic.

    Keep your doctor..?

  7. Michaeltk says:

    Medical practice consultants recommend to internists that they have no more than 11% Medicare patients in their practice. That is before the 21% cut in reimbursement. Medicare now pays doctors from 10% to 20% of billed charges. Medicaid is accepted at few private physician's offices and usually because the patient is a relative of another patient. As director of a trauma center, I had to deal with Medicaid (Called MediCal in California). We got paid about two years after the service and at about 10% of billed charges. All private doctors (paying their own bills) lose money on Medicaid patients and many lose money on Medicare.

  8. uncledip says:

    Er… what the heck is meant by a "funding cliff"
    Is it the point where payments to docs stop? Is it the point where docs bail out of medicine and
    buy Subway franchises? I'm trying to imagine myself peering over the edge like Wylie Coyote.

  9. Hugh says:

    If Keith Hennessy can reconcile these gimmicks designed to generate a budget “surplus” why then can’t the CBO (or heaven forbid, the press)? Why can’t the CBO throw a flag like an NFL ref? Whistle……”Medicaid encroachment on Speaker of the House, $29 billion penalty, repeat the down”.

    • CBO is required to score the legislative language given to them. In this case they did so accurately. I have instead made a point that such language is politically unsustainable. That's a judgment call on my part, and one that CBO is precluded from making when they score the legislation.

  10. tomllewis says:

    Keith, Obama budgets have pushed % of GDP up to 25%. http://bit.ly/bf1kwK Do you know what % of GDP is spent by ALL the States?

  11. […] Keith Hennessey first blew the whistle on this shell game almost two weeks ago.  With an avalanche of reports of unintended (or intended) consequences landing in media reports over the past week, this is a good time to review why the ObamaCare bill has them — and why it won’t work. […]

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